Keeping Personal and Business Finances Separate

We all know the importance of a good work-life balance, and the same idea applies to your financial situation.

In this article, we’ll share some tips around how to organise your finances to minimise unwanted overlap, so you don’t accidentally spend some of your own money on your business (or vice versa).

Why is it helpful to keep my business finances separate?

If all the money you make goes straight back into your business, you won’t have any left for yourself (better cancel that holiday). But by the same token, if you splurge it all on shiny things then your business may well struggle to progress.

Try not to panic quite yet, though, as there are some things you can do.

Use a separate bank account for your business

If your personal and business finances all go into the same pot, it’s easier to mix them up.

Having a separate business bank account is a legal requirement for some businesses (such as limited companies, because they’re a separate legal entity in their own right). It’s just as useful to have a bank account if you’re a sole trader though, so that it’s easier to identify what’s what.

Maintain good bookkeeping records

The first step should absolutely be well-organised financial records. We’re obviously going to say that because we make bookkeeping software and we like being employed, but that doesn’t stop it being true.

What does good bookkeeping look like, though?

Good bookkeeping means making sure every transaction in your business is documented and accounted for, and that these records are up-to-date.

Using decent bookkeeping software will help you automate a lot of the more time-consuming tasks, so the process won’t be as boring and laborious as it sounds.

Track your spending

Those detailed and accurate financial records will help you to analyse what’s really happening in your business, and they also give you a means by which to monitor regular spending, too.

For example, a tracking tool allows you to compare your spending across different projects, and also check whether your invoices have been paid on time. It can be particularly helpful if trying to deal with the finances of multiple jobs or income streams at the same time is making your head spin.

Beyond this, though, a tracking tool can help in terms of differentiating your personal and business finances, as you know exactly what’s being spent on what.

It’s really about compartmentalising (ooh fancy word!) your business to ensure you stay on budget and don’t overspend.

If you’re looking for intuitive, easy-to-use software that’s MTD-compliant, consider using Pandle. Just thought we’d mention it.

Predict your cash flow

Cash flow describes the timing of money coming in and going out of a business. Your cash flow forecast predicts your cash flow in the future, based on the information you have available.

It’s an incredibly useful source of information, because making sure you have enough money in at any given point, will help you make sure there’s enough money to go out when it needs to. It’s the difference between whether or not you’ll be able to make all your payments on time.

Knowing how much you’ll need an when in advance will help you time any other spending and take necessary precautions, so you’re less likely to end up being caught unawares (and end up dipping into your personal funds to pay the business’s bills).

For example, you can use your cash flow statement or forecast to create a budget with some wiggle room – just in case.

A forecast is just a forecast at the end of the day, but it can at least give you an idea of what to expect, being based on actual financial data.

Set up a limited company

The key difference between setting up as a sole trader vs a limited company is that setting up as a limited company means the business is a separate legal entity, and any money the business makes belongs to the company, not you.

On the other hand, if you decide to register as a sole trader, then you and the business are legally the same, and there’s no legal distinction between you.

So, if you’re particularly concerned about keeping your personal and business finances separate, then setting up a limited company is probably the better option, as this way it’s done automatically and you don’t really have to worry about it.

Speak to an accountant

A professional accountant can help you with all of this, simplifying the whole process.

In short, accountants review financial statements, analyse the health of your business, and ensure you’re operating in the most tax-efficient way possible.

Alternatively, if you’re simply looking for someone to help with the finer details, then a bookkeeper may be more useful for you right now.

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.